Hedge fund rejected by split pension board

The $100 million investment lacked the votes

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A recommendation from the county pension board’s portfolio strategist to invest $100 million in a new hedge fund suffered a rare rejection Thursday, in part because board members learned the trader lost $1.8 billion in now-notorious “credit default swap” investments in 2008.

Four members of the San Diego County Employees Retirement Association board supported the plan proposed by consultant Lee Partridge. Two trustees voted no and two others abstained, leaving the investment one vote shy of a majority.

“There are an awful lot of opportunities to invest worldwide,” said county Treasurer-Tax Collector Dan McAllister, who serves on the pension board as part of his elected duties and voted against the proposal.

“To take any kind of additional risk with $100 million of our retirees’ money is disconcerting at best,” he said.

Partridge recommended that the board invest $100 million with Boaz Weinstein, a well-known credit trader who lost $1.8 billion in 2008 when he worked for Deutsche Bank.

Some board members complained that Partridge did not include Weinstein’s investment history in materials he provided the board in advance of his recommendation.

“I don’t like surprises, and this is a big surprise today to find this kind of information,” said Dianne Jacob, who represents the Board of Supervisors on the pension board and later voted no on the plan. “I’m disappointed.”

Partridge responded that his firm, Salient Partners of Texas, conducts extensive reviews of the investment managers it recommends but routinely excludes some details from their reports to clients.

“We normally don’t release the background checks to the board; it has never been the practice,” said Partridge, who noted that Salient also invests with Weinstein’s company, Saba Capital Partners. “Some of the best investment opportunities do not necessarily play well in the media.”

Weinstein defended his investment record, telling trustees that the $1.8 billion loss should be kept in context. He earned investors huge profits before the crash, he said.

“One thing I’m not going to do is apologize for having had a down year,” he said. “It’s an impossible standard.”

Before he voted to approve the investment, Trustee Doug Rose said he was not overly concerned about the 2008 losses Weinstein experienced.

“I’m not going to penalize someone for losing money as long as I’m convinced what they did was in line with what everybody else did,” Rose said.

Trustee Garry Sobeck was outspoken about his misgivings.

“It’s a perception challenge for this board to explain investing $100 million with this firm,” he said. “I’m struggling with how to deal with that.”

Sobek was one of the two trustees who abstained from voting.

Jacob immediately noted that four votes were not enough to proceed with the investment, but agency lawyer Steve Rice overruled her. Rice said a majority of votes cast determines passages, not the number of trustees seated at the meeting.

After the meeting adjourned, Rice double-checked his legal ruling and reversed the approval of the investment.

Spokeswoman Michelle Butler said it was not yet clear whether Partridge would bring the investment opportunity back to the board for a second vote.